[Click eStock] Celltrion Avoids Trading Suspension... Expected Growth in Diagnostic Kits and Biosimilars

[Asia Economy Reporter Myunghwan Lee] Hanwha Investment & Securities stated on the 15th that the uncertainty surrounding Celltrion has been resolved with the conclusion of the accounting inspection, and maintained a buy rating. However, the target price was lowered by 17% from the previous 300,000 KRW to 250,000 KRW, reflecting the reduced expectations for the COVID-19 antibody treatment drug, Rekirona.

On the 11th, the Securities and Futures Commission (SFC) held the 7th extraordinary Securities and Futures Committee meeting to review the inspection results and measures for Celltrion and two other affiliates and accounting firms. The SFC judged that while there were significant errors in the accounting treatment of Celltrion and the other two affiliates, there was no intentional wrongdoing. The main issues pointed out were ▲overstatement of development costs ▲failure to disclose related party transactions in the notes ▲non-recognition of inventory valuation losses of subsidiaries ▲overstatement of development costs with low technical feasibility. As a result, Celltrion received measures including fines, recommendations to improve internal controls, and corrective demands.

With the final conclusion of the accounting inspection, Hanwha Securities explained that risks such as trading suspension and delisting, which investors were concerned about, have been eliminated. Although corrective measures remain, it is judged that the impact on Celltrion’s business will be minimal. The fine will be finally decided by the Financial Services Commission and can be up to 20% of the violation amount.

Hanwha Securities forecasted that Celltrion’s performance will improve due to the expansion of market share in COVID-19 diagnostic kits and biosimilars. The company’s expected sales for this year are 2.417 trillion KRW, a 26.4% increase from the previous year. Two supply contracts for rapid antigen COVID-19 test kits, which have export agreements, are expected to generate sales of 575.8 billion KRW in the first half of the year. It was also analyzed that the market share of biosimilars, Celltrion’s main business, will expand in the U.S. market, which offers higher margins compared to the highly competitive European market.

Researcher Hyungsu Kim of Hanwha Securities said, "This is a time when significant growth is expected due to the export of diagnostic kits and the expansion of U.S. biosimilar market share," but added, "The target price is lowered reflecting the reduced expectations for Rekirona due to the Omicron variant and intensified competition in the European biosimilar market."

This content was produced with the assistance of AI translation services.